The Chinese economy is running hot. Like “Careful-Something-Really-Bad-Could Happen” hot.

“Since 2007, China has added about $24 trillion-worth of debt,” says Hedgeye Financials analyst Josh Steiner.

That’s enormous.

Here’s an example to understand just how big the problem actually is. From 2000 to 2007, “the greatest leverage run-up in global history,” Steiner says, the U.S. and Europe each added about $12 trillion in debt:

“So China’s economy is about one-quarter the size of the combined economies of the U.S. and Europe, and they’ve added as much debt in the same amount of time as those two economies did in the lead up to the biggest collapse in global history.”


Furthermore, China’s “credit-to-GDP gap,” defined as the difference between the credit-to-GDP ratio and its long-run trend, just hit 30%. As Steiner points out in the video above, historically countries have a protracted credit crunch when this measure breaches 10%.

What does it all mean?

“China is extremely vulnerable. They’ve got a tremendous amount of debt and the non-performing loans are starting to balloon,” Steiner says.

Look out.

(For more on this topic, check out Senior Macro analyst Darius Dale in the video “Will China’s Economy Collapse? Our Take.”)

China’s $24 Trillion Problem & Why It’s ‘Extremely Vulnerable’ - 2